Landmark Company is considering an investment in new equipment costing $360,000. The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $70,000 the first year, $80,000 the second year, and $120,000 every year thereafter until the fifth year. What is the payback period for this investment? The residual value is zero.

Question

Quizplus · Accepted Answer

C) Calculations:
$70,000 + $80,000 +$120,000 = $270,000
$360,000 - $270,000 = $90,000
$90,000/$120,000 = 0.75
3 + 0.75 = 3.75

Landmark Company Is Considering an Investment in New Equipment Costing